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GAO Questions Value Of Medicare Advantage Subsidies

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If Congress wants to focus mainly on helping low-income Medicare beneficiaries, it should consider giving them direct subsidies rather than maintaining current Medicare Advantage program subsidies, a U.S. Government Accountability Office official testified today.

James Cosgrove, acting health care director at the GAO, talked about the Medicare Advantage program at a hearing of the House Ways and Means Committee Health Subcommittee.

Medicare is on track to spend a total of about $54 billion on subsidizing Medicare Advantage plans from 2009 through 2012, and, because of the way premiums are structured, traditional Medicare FFS enrollees are also helping to subsidize the extra Medicare Advantage program costs, Cosgrove testified.

“Whether the value that [Medicare Advantage] beneficiaries receive in the form of reduced cost sharing, lower premiums, and extra benefits is worth the increased cost borne by beneficiaries in Medicare [fee-for-service] is a decision for policymakers,” Cosgrove testified. “However, if the policy objective is to subsidize health-care costs of low-income Medicare beneficiaries, it may be more efficient to directly target subsidies to a defined low-income population than to subsidize premiums and cost sharing for all Medicare Advantage beneficiaries, including those who are well off.”

The GAO also released a written version of Cosgrove’s testimony, “Medicare Advantage: Increased Spending Relative to Medicare Fee-for-Service May Not Always Reduce Beneficiary Out-of-Pocket Costs.”

Many Democrats have criticized the Medicare Advantage program, and they welcomed Cosgrove’s testimony.

“We have no idea what beneficiaries actually receive in Medicare Advantage plans because there is absolutely no requirement that Medicare Advantage plans turn over any data on services actually rendered to the government or to beneficiaries,” Rep. Pete Stark, D-Calif., chairman of the Health Subcommittee, said during his opening statement at the hearing.

“The only way GAO could analyze the different benefits was to rely on projections from the Medicare Advantage plans with respect to how they said they’d spend their subsidies,” Stark said. “That is not is acceptable. That is just like no-bid contracts in Iraq. We ought to know what we’re getting.”

“The real beneficiaries of Medicare Advantage are the insurance companies, which have profited handsomely,” Rep. John Dingell, D-Mich., chairman of the House Energy and Commerce Committee, said in a statement about the GAO report. “It’s time to stop overpayments to the insurance industry and use these funds to support the health of elderly and disabled Americans.”

Officials at America’s Health Insurance Plans, Washington, which represents most of the program providers, and officials at the Centers for Medicare and Medicaid Services, the agency that administers the Medicare Advantage program, said GAO officials and others are misinterpreting the data in the GAO’s own report.

The statistics in the GAO report show that the Medicare Advantage program actually saves enrollees an average of about $1,100 per year, according to AHIP President Karen Ignagni.

“This is the latest confirmation that most Medicare Advantage enrollees are saving on health care costs,” Ignagni said in a statement released after the hearing.

“Unfortunately,” Ignagni said, “the report is already being used to suggest that Medicare Advantage plans are not providing comprehensive benefits. By focusing on cost-sharing for individual services — without considering the entire episode of care — the report underestimates the value that Medicare Advantage plans are providing. These comparisons do not account for the entire costs that a beneficiary is likely to incur during a spell of illness.”

Acting CMS Administrator Kerry Weems testified that his agency has concerns about the methods the GAO used to analyze the value the Medicare Advantage program offers to enrollees.

The GAO describes the type and value of additional benefits, such as reductions in beneficiary cost-sharing, that beneficiaries receive when they enroll in a Medicare Advantage plan, Weems said.

The GAO compares the level of additional value that health maintenance organizations, preferred provider organizations and private fee-for-service, plans offer beneficiaries, Weems said.

Instead of talking about the value of these additional benefits, and how they vary by plan type, the GAO emphasizes Medicare Advantage enrollees’ share of inpatient hospitalization costs, Weems said.

“The methodology used to determine inpatient cost sharing was flawed in that it did not include Part B [outpatient and physician] services, consider longer-term hospitalizations, or address effective out-of-pocket maximums,” Weems testified.

Congress created the current Medicare Advantage program, which gives private carriers a chance to run private Medicare health maintenance organization, preferred provider organization and fee-for-service plans, when it enacted the Medicare Modernization Act of 2003.

The Medicare Advantage program is a revamped version of the Medicare plus Choice program.

The older program, created in the mid-1990s, emphasized participation of private HMOs. Carriers flocked to the older program when it was created, then fled from it when Congress changed program rules in ways that made participation less attractive to the carriers.